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Huge Debt Prompting Bankruptcy of Charter

After years of struggling with an ever-growing debt burden, Charter Communications is trying to clean up its balance sheet.

Charter, one of the nation’s largest cable television operations, said on Thursday that it would file for bankruptcy by April 1 as part of an effort to handle $21 billion in debt. Under the plan it has worked out with some of its creditors, Charter will be able to shave about $8 billion from that amount.

The move by Charter, whose chairman and largest stakeholder is Paul G. Allen, a co-founder of Microsoft, illustrates the tough debt environment for a broad spectrum of companies these days. Analysts say that while Charter is a sound company in a fairly resilient industry, its debt load proved crippling, and it could exhaust the patience of its creditors no longer.

“The writing was on the wall in terms of the company’s needing a wholesale restructuring,” said Russell Solomon, a senior vice president at Moody’s Investors Service.

Charter’s impending bankruptcy filing would be the year’s largest so far, at $15 billion in assets, according to data from Thomson Reuters. Two other companies — Midway Games and Aleris, an aluminum products business — filed for bankruptcy protection on Thursday.

The company’s announcement took no one by surprise. It had hired the investment bank Lazard and the law firm Kirkland & Ellis to help it try to restructure its debt as it dealt with a committee of bondholders over possible alternatives to bankruptcy.

Last month, Charter said that it would forgo a $74 million interest payment on its bonds due Jan. 15, entering a 30-day grace period during which it tried to work out a pact with some of its creditors.

That period was set to expire within days. Earlier this month, it hired Greg Doody, a lawyer who helped restructure the California utility Calpine, to help reorganize the company.

In its announcement on Thursday, Charter said that it had an agreement in principle with its bondholders in which the company will raise about $3 billion through refinancing existing debt and getting new capital. In addition, two of its subsidiaries will pay off the $74 million that was due last month.

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The company plans to operate with about $800 million in cash on hand through the bankruptcy process, instead of taking out what is known as debtor-in-possession financing, a customary loan in bankruptcy but one largely unavailable to highly indebted companies like Charter. It also said that Mr. Allen would remain its largest voting investor.

“We are pleased to have reached an agreement with such a significant portion of our bondholders on a long-term solution to improve our capital structure,” Neil Smit, Charter’s chief executive, said in a statement.

“The interest and support provided by our stakeholders with their new capital investment underscores their confidence in Charter and our business.”

Charter’s announcement did not mention any negotiations with its secured lenders. Over the years, the 16-year-old publicly held company, which operates in 27 states, had secured loans to finance various acquisitions at very favorable terms. With credit now much more expensive, these lenders would like to renegotiate the terms of their loans, people briefed on the matter said.

“The spreads that Charter pays are well below what it would pay if it had to get a loan now,” Mr. Solomon said.

While it has labored under an increasingly oppressive debt burden, Charter’s business remains viable, said Jake Newman, an analyst at CreditSights.

The company said it expected to report earnings of $2.3 billion before interest, depreciation and amortization for 2008, 10 percent more than in 2007, even though it had a sharp drop in customer growth in the fourth quarter.

“I think that management has done a pretty good job, given the constraints of leverage that they’ve got,” Mr. Newman said. “Operationally, there are things that the company could be doing better. But you could say that about a lot of companies.”

A version of this article appears in print on , on Page B6 of the New York edition with the headline: Huge Debt Prompting Bankruptcy Of Charter. Order Reprints|Today's Paper|Subscribe